1. Field of the Invention
The invention relates to the field of handling transferable electronic records evidencing ownership of an asset, such as a transferable note, tangible asset, or intangible asset.
2. Description of the Related Art
Originating, handling, and servicing mortgages has been a paper intensive process. The collection, generation, movement, and authentication of paper documents among numerous unrelated parties has been critical to the mortgage process. Computers and telecommunications have been used to improve the mortgage process for both consumers and service providers and various systems have been developed for streamlining the application, evaluation, underwriting, and origination processes. Similarly, once a mortgage has been originated, electronic data networks have improved information sharing among parties in the secondary mortgage market. These data networks facilitate transactions and decrease processing times for mortgage servicers, mortgage owners, and creators of mortgage-backed securities. However, the legal requirement of a paper mortgage note and the importance of the note's content and control have limited the scope of automation possible. All parties to a mortgage transaction have relied on an executed mortgage note to effect enforceable creation, ownership, and transfer of the rights and responsibilities arising under property and debtor/creditor laws. The need to handle a unique paper document has been a limiting factor in using electronic systems to improve the efficiency of the mortgage process.
In July 1999, the National Conference of Commissioners on Uniform State laws gave final approval to the Uniform Electronic Transactions Act (UETA). UETA enables consumers, business, and government to agree to use electronic forms of records, signatures, acknowledgments and notarization. It requires no standard or particular form of electronic transaction. Instead, UETA validates the use of electronic means where traditional paper documents and signatures were previously required. The centerpiece of UETA is §7 which validates the use of electronic records and signatures. Electronic records satisfy requirements for writings so that the enforceability of a record or signature cannot be denied simply because it is in electronic form. An electronic record is a record created, generated, sent, communicated, received or stored by electronic means. An electronic signature is an electronic sound, symbol or process attached to or associated with a record and executed or adopted by a person with the intent to sign the record.
Section 16 (Transferable Records) of UETA creates the concept of “control” over a special type of electronic record, the transferable electronic record. “Control,” once established, is the equivalent of “possession” traditionally used in the paper context. Systems must be in place to ensure that the transfer of the record is done in such a manner that there is only ever one “holder” of the record. To qualify for “control” under the Safe Harbor provisions of Section 16, the transferable record must be created, stored and assigned in such a manner that:                It remains unique, identifiable and unalterable.        The authoritative copy identifies the person asserting control as either the person to which the record was issued or most recently transferred        The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian        Copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control        Each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy and not the authoritative copy        Any revision is readily identifiable as an authorized or unauthorized revision.        
Transferable records are legally enforceable memoranda embodying rights to underlying assets or responsibilities. In this context, “transferable” does not refer to the ability to transfer the electronic record between computer systems or storage locations (though such records may also be “transferable” in this sense), but the ability to affect a legal transfer of the rights embodied in the electronic record. Examples of transferable electronic records include electronic equivalents of negotiable instruments, such as promissory notes, warehouse receipts, bills of lading, and similar legal paper. Transferable electronic records may also be expanded to include transferable records such as mortgages, deeds, titles, and other documents associated with underlying assets or obligations, such as real estate, motor vehicles, boats, equipment, airplanes, copyrights, trademarks, patents, or other tangible or intangible property.
There are numerous possibilities for systems enabling the creation, storage, and transfer of electronic records in accordance with the UETA. For example, it may be possible to create an electronic equivalent of a paper document, where the electronic document itself provides all information necessary to validate its authenticity. However, such solutions have proven difficult to implement securely. Control and transfer of the unique electronic record may be difficult and the opportunity for forgery of both records and transfers may be challenging to detect.